Audit Changes Since Brexit
By Edmund Cartwright, Auditor, Johnsons Chartered Accountants
In part three of our blog series on Assurance and Audit we address in more detail a key change that has taken place for UK subsidiaries of European Parent Companies since Brexit came into force on 1 January 2021.
We’ve found that a number of new clients have not been advised of this change, and are now in breach of the law. This is because if they are a UK subsidiary of an EU Parent Company, last year’s accounts should, in fact, have included an Audit.
What Is The UK Subsidiary Audit Exemption for EEA Parents?
The UK Subsidiary Audit Exemption for EEA Parents formerly allowed a parent company based outside the UK (in the EU) to take on a guarantee of any liability for subsidiaries. Whilst this seemed easier for the financial team, it actually removed the limited liability aspect of any subsidiary that was incorporated as a Limited company in Britain. Because any stakeholder pursuing the subsidiary could ultimately go after the parent company, reducing the risk of dealing with these subsidiaries,.
Historically, as long as the EAA Parent Exemption was formally lodged with Companies House, an audit was not required. It is worth noting that we have found instances where businesses did not inform Companies House that they were taking the exemption, and have simply assumed that the exemption was automatic, putting them in breach of the law. It is a criminal offence not to submit correct accounts.
So Do I Require An Audit?
On the point of Brexit on 1 Jan 2021 the UK Subsidiary Audit Exemption for EEA Parents was rescinded. So all UK-based companies with parent companies abroad that are part of a ‘non-small-group’ must now be independently audited as part of their annual accounts. Our audit services department spoken to new business clients in recent weeks about accounts preparation and, after discussing the company structure that have advised these clients they also require an audit. Many accountants are not advising their clients on this matter.
You might be interested to note that in the past, we have regularly advised companies against adopting the EEA Parents guarantee for subsidiaries, because it opened up the group to increased liability.
For example, if the UK entity found itself in breach of GDPR, the wider group could be liable for a hefty fine. Sometimes the easy option, is not the best option. By speaking to us you will receive holistic advice on a range of financial matters, and uncover areas of compliance that might have escaped your finance team.
Case Study – Audit & NI Refund
The Client: A UK-based sales and marketing arm of a EU manufacturing company.
The Brief: We were called in to quote for a set of accounts. We found that they were part of a large group. They should have had an audit for many years and the company had never claimed the EEA parent Exemption. Unfortunately their advisor had not spotted this.
The Solution: We were able to start the 2020 and 2021 audits at the same time and were able to complete them both quickly, protecting the directors from legal action.
Contact our audit team if you need help with audit changes since Brexit.
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